LNG industry doubts persist despite Woodfibre LNG announcement

B.C. Premier Christy Clark and Minister of Natural Gas Development and Minister Responsible for Housing and Deputy Premier, Rich Coleman, right, listen as Byng Giraud, Woodfibre LNG country manager and Vice President of Corporate Affairs, explains the project at the Woodfibre LNG site near Squamish, B.C., on Friday November 4, 2016. Photo by Darryl Dyck/The Canadian Press

CALGARY, B.C. – Despite the fact that Woodfibre LNG is set to become the first LNG export project in Canada, the launch of a national LNG industry on a large scale is still clouded in doubt.

The country ambitions to export LNG, which are based largely in B.C., have been hit with a series of setbacks this year. In July, Shell announced it was indefinitely postponing its LNG Canada project. Malaysian state-owned Petronas has also delayed a final investment decision for the Pacific Northwest LNG project.

While last week’s approval for Woodfibre LNG is positive, proposal didn’t face the same obstacles as some of the bigger projects, said Dirk Lever, head of research at AltaCorp Capital.

“I’m hoping it’s the start of a trend, because we really need it,” said Lever. “But I just remind myself it is a small deal.”

Of the 20 LNG proposals in B.C., Woodfibre LNG is a relatively tiny player. It is licensed to export about 2.1 million tonnes of LNG annually. In contrast, LNG Canada and Pacific NorthWest LNG would each ship roughly 10 times that amount.

Lever said while the green light for Woodfibre LNG doesn’t mean prospects have improved for the other projects, it’s still good for the industry.

“It tells you that somebody believes there’s a market out there,” he said.

Dulles Wang, principal Americas gas analyst at Wood Mackenzie, said another reason why Woodfibre LNG is a different beast entirely is because it’s being developed by a private company that will fund the estimated $1.6-billion cost internally rather than through debt or equity.

He said Woodfibre, owned by Singapore-based RGE Group, is also benefiting from the delays with the bigger West Coast projects and therefore will be better placed to capitalize on an expected rebound in LNG prices and Asian demand over the next decade.

“You are seeing some difficulties with the bigger projects, so the smaller projects, if it can move and if it can take advantage of the markets in the early 2020s, then the timing I think is right,” said Wang.

He said the larger developments have also faced greater resistance because of potential emissions and ecological effects, not to mention the bottom line.

“These large-scale Canadian projects are still high cost,” said Wang.

Hilary Novik, an analyst at the Eurasia Group, said the regulatory process in Canada is drawn-out, discouraging investment.

“The onerous permits, and the onerous permitting process, had kind of scared investors away,” she said.

Novik said she doesn’t expect Petronas to cancel Pacific Northwest LNG, but she does see a greater risk that a final decision on it is put off until late next year or early 2018, putting production into the next decade.

“We think Canada has really missed the window of their LNG opportunity, at least in the near to medium term,” she said. “We expect broader export potential to remain unrealized until the end of the decade.”

She added that once Petronas makes its final decision on Pacific NorthWest LNG, she doesn’t expect to see another company make a final project approval until the early 2020s, when the market is expected to have improved.

“For now it’s definitely a more gloomy, bleak environment for global LNG.”